Einhorn v. Apple: Round One Technical for Einhorn

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7 Responses

  1. Lawrence Cunningham says:

    My friend, the noted value investor Whitney Tilson, points out that Einhorn’s case for his proposed preferred stock, which he cutely calls iPrefs, is summarized by Einhorn’s slide presentation made yesterday, which can be found at: http://www.scribd.com/fullscreen/126634859?access_key=key-3cjmbd6nenfqls059uc. According to Whitney:

    “I think iPrefs are a brilliant idea that uniquely works for Apple, given its enormous pile of cash (that exceeds the market capitalization of all but 17 companies in the S&P 500–incredible!), huge cash flows, yet depressed multiple. By creating a dedicated high-yield instrument in this yield-starved environment, iPrefs would unlock a lot more value than more traditional techniques like a special dividend and/or an increase in the dividend and/or share repurchase program.”

  2. Shag from Brookline says:

    I recall the days when corporate tax planning for highly profitable companies included the potential of the accumulated earnings tax. Is that tax dead on arrival for technology companies such as Apple?

  3. Lawrence Cunningham says:

    Shag: That tax continues but has limited application, as I understand it. It requires several things that don’t seem present in this case. The most basic seems to be that the purpose of accumulation is to enable shareholders to evade federal income tax. To probe that involves evaluating the reasonable needs of the business for such accumulation and Apple (like other tech companies and many huge companies) tells a story about cash needs. The third considers whether the corporation has a policy of shareholder distributions of any sort, and Apple has paid a regular dividend for many years and also engages in a share repurchase program. Turning back to corporate law, decisions about the tax implications are within the plenary power of a board of directors, not shareholders.

  4. Shag from Brookline says:

    I last studied in detail the AET Regs. back in the early 1980s. Back then, there was no special tax break for a shareholder receiving dividends comparable to the Bush tax cuts in 2001. Many hi-tech firms back then, and their shareholders, preferred increases in stock values over dividends, with the benefit of relatively low long term capital gain rates. As to the reasonable needs of the business, with the accelerating advances in technology in more recent years, plans for such can be quite subjective, making it difficult for the IRS to challenge such plans (especially with inadequate funding of IRS by Congress over the years). I accept the role of the Board of Directors regarding dividends. Considering the significant cash hoards of Apple and others, perhaps tax reform might consider giving the AET more of a bite, not only of Apple, but other firms with large cash hoards. Query: If an AET were imposed, might a Board of Directors have liability concerns under corporate law?

    [I wonder if in Apple’s SEC filings references are included on its plans for its cash hoard to gauge whether such plans are “reasonable” or referencing any risk of a potential for the AET.]

  5. Shag from Brookline says:

    I did a little Googling and came up with the Ethics- Legal Lady Blog at:


    with its 9/9/12 post “Ethics of Accumulated Earnings tax

    that includes a discussion of Apple and other hi-tech companies and the AET.

  6. Jennifer Taub says:


    Thank you for writing about this. I will link to this on TWEN for my corporations classes.

    In corporations, in addition to using your textbook, students are assigned to follow one of ten corporations, one of which is AAPL.

    As part of that, students reviewed financial statements early in the semester, and just this week, proxy voting. For most teams, this meant the 2012 proxy and the post-meeting 8K showing voting results. However, for AAPL, given the early annual meeting, there was an opportunity to look at 2013.

    The AAPL team (and broader class) is interested in Einhorn and the preferred stock issue.

    This post is quite helpful now and will also be useful when we cover fiduciary duties.

  7. Lawrence Cunningham says:

    Another friend suggested that I include a link to the comments of Apple’s CEO, Tim Cook, about this whole matter from a couple of weeks ago. The link is here: